The Relationship Between Interest Rates and Bond Prices


Bonds have an inverse relationship to interest rates; when interest rates rise, bond prices fall, and vice-versa. At first glance, the inverse relationship between interest rates and bond prices seems somewhat illogical, but upon closer examination, it makes good sense.


An easy way to grasp why bond prices move in the opposite direction as interest rates is to consider zero-coupon bonds, which don’t pay coupons but derive…



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